Friday, May 10, 2013

A delegation of the Left
Front of West Bengal met the Prime Minister Shri Manmohan Singh on May 9, 2013
urging for a neutral, fair and high level investigation into the massive fraud
of committed by the Saradha Group of companies and also the return of thousands
of crores of rupees to all the affected
depositors immediately. The delegation comprised of five MPs and 6 MLAs and the
former Finance Minister of West Bengal, whose names are appended in the
memorandum. The delegation will also be
meeting the President. The copy of the memorandum presented to the Hon’ble
Prime Minister is given below.

********

Dr. Manmohan Singh

Hon’ble Prime Minister of
India

New Delhi.

Hon’ble Prime Minister,

Please refer to the
Memorandum submitted to you on August 22, 2011 by the Left Front Legislative
Party in West Bengal as well as the Memorandum placed before you on December 19,
2012 by the Left Front Members of Parliament, drawing your kind attention to
the alarming problem of irregularities being committed by certain financial
companies (so-called ‘Chit Funds’ in terms of local parlance in West Bengal)
and requesting for an urgent action by the Central Government. Unfortunately,
however, no timely intervention was made by the Central Government and the
present State Government. As a result, a massive fraud has been committed by an
irregular financial company (Saradha Group) by suddenly closing down all its
offices and resulting in a widespread default on repayment to lakhs and lakhs
of depositors, belonging mostly to the poorer sections in rural and urban areas
of West Bengal. Employees in the print and electronic media owned or controlled
by this Saradha Group have also lost their jobs due to this sudden closing
down. There has been, due to the misdeeds of this company and similar other
companies as well as the Central policy
of making small saving schemes less attractive and commission of the agents
reduced, a severe fall in the small savings collection in the State - from Rs.
8,409 crore of net collection of small savings in Post Offices of West Bengal
in the last financial year ( 2010-2011) of the Left Front Government to (-) Rs. 987 crore in the next year ( 2011-2012)
and to (-) Rs. 165 crore in 2012-2013 ( up to December), adversely affecting
the State as well as the small savings agents.

You are kindly aware that among the different
types of financial companies, there is one category of companies which raise
deposits from the people, invest the
money and promise returns in
terms of interest, etc. These companies are required to register with the
Registrar of Companies (ROC) under
the Ministry of Corporate Affairs of the Central Government, and then also
obtain permission from the Reserve Bank of India (RBI) and function by obeying
the guidelines of RBI. If there is any violation of these guidelines, then the
RBI can take necessary actions, including stoppage of work of the concerned
companies. There is another category of financial companies which raise funds
from the people in terms of share/debentures, and then invest the money in
various ventures, including real estate, hotels, television channels,
newspapers, entertainment business etc., with promise of returns in terms of
lands, apartments, etc. These companies are again to register first with ROC
and then get approval from the Securities and Exchange Board of India (SEBI)
under the Union Finance Ministry, and obey the guidelines of SEBI. If the
guidelines are flouted, then SEBI can take action in terms of prohibiting the
activities of the concerned companies. The Saradha Group belongs to this second
category. It may be noted in the context that the State Government does not
have any role in giving approval of these companies.

Grave financial irregularities are committed
by both these two categories of companies when they violate the guidelines of
RBI or SEBI, as the case may be, by alluring promises in terms of false and
unrealizable offers of interest or returns. There is usually a period after
which these returns are to be paid back to the depositors. In the intervening
period, the concerned companies keep on raising funds and often make very
partial payment, and then suddenly close their activities without any notice,
thus cheating the common people in a large scale as has been the case with the
Saradha Group, as mentioned above.

Under the circumstances, the State Government,
within its limited power, can take action if any written complaint of being
cheated is obtained, by immediately arresting the proprietors of the concerned
companies, attaching all of their properties and then arranging through the
Hon’ble Court, the sale of the properties for repaying back to the affected
depositors. If there is no written complaint, even then the State Government
can conduct enquiry on its own and submit the findings to the concerned Central
Agencies (SEBI or RBI) for taking necessary action. The State Government can also pass a Bill in
the State Assembly for Presidential assent for implementing the Act, so as to
take necessary action at the very initial stage of the offence in terms of
decentralized administrative and legal framework in the districts.

The Left Front Government in West Bengal had,
during its tenure, taken all these actions. In 1980- 81, when some large
financial companies had started cheating people, the State Government, on the
basis of written complaint, took exemplary action by arresting the heads of the concerned companies and then attaching their
properties for beginning the process of repayment through the Hon’ble Court.
When again in 1991- 92, several companies had cheated people, the State
Government in the Finance Department and the Home Department (involving
both Kolkata Police and District
Police), on the basis of written
complaint, took prompt action by arresting heads of nearly 96 companies,
attaching their properties (both movable and immovable, including bank
accounts) and then starting a Public
Interest Litigation on its own in the
Hon’ble Calcutta High Court with a verdict for selling the attached properties
through the Court - appointed special officer for beginning the process of
repayment of money to the depositors. In the year 2002- 2003, when about 17
companies had cheated people, the heads of all of these companies were
arrested, again on the basis of written complaints, and a process of prompt
repayment was undertaken. Along with taking those steps, the Left Front
Government had also introduced in 2003-2004 a bill (namely, the West Bengal
Protection of Interest of Depositors in Financial Establishments Bill, 2003)
for taking early preventive and punishable action against irregular financial
companies with a decentralized framework as mentioned before. However after
repeated exchange of views and urging by the State Government, when a much
delayed Central response (although for
substantially similar bills for several other State Governments, Presidential
assent was accorded with more promptness) was obtained in August, 2009 with
Presidential message for a few changes, these changes were promptly
incorporated and a new bill (The West Bengal Protection of Interest of
Depositors in Financial Establishment Bill, 2009) was introduced and passed unanimously (with
TMC MLAs also present) in the State Assembly on December 22, 2009. The new Bill was then sent for
Presidential assent. However the Presidential assent, despite reminders, could
not be obtained during the tenure of the Left Front Government.

It needs to be mentioned that from 2008 - 09,
a new feature emerged when several companies within jurisdiction of SEBI had
started operating in a manner which created apprehension of cheating of people. However, no written complaint of cheating was
received by the State Government. The Left Front Government, therefore, started
enquiry on its own involving jointly the Finance Department and Home Department
(in terms of Kolkata Police and District Police) and then submitted its
findings concerning four relatively big companies (including Saradha Group) to
SEBI for necessary action. For the Saradha Group, the attention-drawing letter
was sent by the Left Front Government on August 23, 2010. We now find that
after closing down of offices of Saradha Group that SEBI has recently issued an
instruction on April 23, 2013 on the Saradha Group to pay back to the
depositors within a period of three months and with prohibition on taking any
further deposit. Although this is a step in the right direction, it has been
much too delayed.

It is also noted with serious concern that we
still do not know about any follow-up action by the TMC-led State Government
regarding the enquiries started by the Left Front Government into the affairs
of four companies mentioned above. We do not know because despite our specific
queries, no answer was given in the State Assembly. Moreover, when a discussion
on this issue was proposed on December 11, 2012 two Left Front MLAs (including
one lady tribal MLA) were beaten up. We also do not know what action was taken
by the TMC- led State Government on the 2009 Bill which was unanimously passed
in the Assembly (with TMC MLAs present) for Presidential assent in the first
twenty months of its existence. We now find that on the basis of a
communication from OSD & ED Special Secretary to the Governor of West
Bengal to the Secretary to the West Bengal Legislative assembly a motion was
passed in the Assembly to withdraw the bill. The aforesaid communication reads: The Ministry of Home Affairs, Government of
India has now returned the aforesaid Bill, considering it to be withdrawn by
the Government of West Bengal as it has been decided to recast the Bill in
order to strengthen it for the purpose of protecting the interest of the
depositors in Financial Establishments. This appears to be a clear violation of
legislative power of the State Assembly, since prior approval of the Assembly
was not taken by the present State Government before sending its views to the Centre
for return of the bill, 2009. Moreover, in terms of the communication mentioned
above, the following sentence in Sl. No. 6 in the statement of object and
reasons of this new bill seems confusing:
It has been advised by the Government of India to withdraw the said
Bill. Then, with only a few changes in the 2009 Bill, the new Bill has been
passed in the Assembly and sent for Presidential assent. We also find that some
of these changes were not necessary and there is also a possibility of further
complications and delay. We suggested a
remedial amendment to this new Bill, and a quicker course of action which was
not accepted. After raising our anxiety about further delay which may be caused
by this bill, we did not however stand on the way of passing of the bill. We
want an early action on the part of Hon’ble President in terms of Article 201
of the Constitution.

Meanwhile, the sufferings of depositors remain
unattended. We therefore urge upon you
for considering the following actions:

(1) As several states are
involved in this massive fraud of Saradha Group, CBI should immediately be
involved in the investigation of this fraud under supervision of appropriate
Hon’ble Court.

Since SEBI is the nodal Central agency, and
the recent verdict of the Hon’ble Supreme Court (2012) clearly directs SEBI to
be the agency for necessary action, SEBI should also be instructed in
coordination with CBI and SFIO to move
into this Saradha case immediately, for a proper and comprehensive investigation into the total list
of properties (including different forms of illegal transfers) for immediate
attachment and for moving the Hon’ble Supreme Court as well as Hon’ble Kolkata
High Court for selling of the properties needed
for repayment to the depositors without delay, and also for exemplary
punishment for the offending persons.

This entire process of
investigation and attachment should be, for reasons of neutrality and fairness,
under the appropriate supervision of Hon’ble Supreme Court and Hon’ble Calcutta
High Court.

(2) Where there are reasons
for anxiety regarding other financial companies in the State, joint action as
mentioned about, may be undertaken immediately for correcting the practices of
these financial companies for preventing further damages.

(3) National small saving
schemes should be immediately restored by the Central Government to their
previous status of attractiveness, with simultaneous restoration of commission
of agents by both the Centre and the State Government.

(4) Along with the highest priority on refund of
depositors’ money, attention may be
given from the national level for a massive programme of an economic
reconstruction of the lives of affected depositors (small and marginal farmers,
small and tiny entrepreneurs, traders
etc.) in terms of soft loans from the nationalized banks to the willing persons
as well as rejuvenating the movement of Self-Help Groups in the State and
democratically elected co-operatives (now rendered inoperative in the State)
so that this massive loss can be transformed into a programme of reconstruction
for growth of production and employment.

There is also a need for paying attention to problems of
journalists, performers and others connected with the closing down of newspapers and TV channels in terms
of inducting new entrepreneurs (without any link with irregular financial
companies), or in terms of helping formation of co-operative of employees
through assistance including soft loan.

(5) An all-out democratic
and decentralized campaign should be started immediately among the affected
people for convincing them to stay away from these irregular financial
companies and to keep their savings, among others, specially in post office
small saving schemes, nationalized banks and co-operative banks.